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Toronto Market Report June-July 2018

14 June 2018

Remax-Condos-Plus

SALES COMMENTARY

Sales on the Toronto Real Estate Board were 7800+ units in May. In our last Report, we were forecasting 8900 units. So where did we go wrong? In a normal year, May and June are usually the largest sale months of the year and that was our expectation. We were also looking for sales in the 90,000 unit range for the year. Our guess now is that it will be 80-85,000 units. That number was last reached in 2010 when the population of the GTA was almost a million people less. The big question is why are people staying in their houses longer? The only answer seems to be that Government has made mortgage financing a whole lot more difficult. That’s not to say that owners are facing financial difficulty. In fact, ‘mortgages in arrears’ are at an all time low in Ontario and are 1/7th of that recorded in our last major market correction in 1990.

This last point leads into our discussion on prices. If sales are down, why aren’t prices starting to fall? In real estate, sellers have a preconditioned notion of what price they want. If they don’t get it, they just take their property off the market. They only reduce prices when they are forced to sell for financial reasons– which is not now. The media and casual observers tend to look at average prices because it is an easy number. But average prices assume that the mix of sales does not change over time. In 2018, we have seen a very strong market for low rise properties under a million, a neutral market between one million and two, and a soft market over two million. In the condo market, properties under $600,000 are the strongest segment, up to a million it is busy and slower over that mark. This is very different than in 2017 when bigger, more expensive properties were selling quickly up to May.

In the condo market, May sales were 15% lower than for May of 2017. In comparison, the total Board was down by 22% for the same period. For downtown condos, sales were 18% lower and in Humber Bay the number was 30% lower. In terms of prices, downtown condos have risen by 10% since the start of the year. However, we noted a change in mid -May. Prices and sales slowed even though listings increased. Sellers need to adjust their price expectations to that of a flat market.

Looking at preliminary sales for June, expect sales to be LOWER than in May. That applies to all market segments. Even downtown condo sales w ill be lower than for May. A new reality has set in.

Toronto MLS Sales

16 BROOKERS LANE: THE NAUTILUS

This month we look at sales in the Nautilus Condos at 16 Brookers Lane in Humber Bay Shores. Built by Monarch, it was registered in 2012 and includes concierge, indoor pool, and many amenities. The first unit we looked at was a one bedroom + den with parking, locker and open balcony. It first sold in 2015 for $320,000; a year and a half later for $380,000; and in 2017 for $422,000. The annual appreciation over two and half years is just under 15%. At 645 sf, that works out to a price of $655/sf. The second unit we tracked was a two bedroom/two bath + den with parking and locker. Located on a high floor, it has a large balcony over 200 sf. It sold in 2016 for $520,000 and then a year later in 2017 for $639,000 – an increase of 23%. At 980 sf, that still is just a price of just $655/sf. In 2018, sold prices in the building are now at $700/sf. Compare that to prices downtown that are averaging $800 -1,000/sf. Currently, there are 6 listings for sale in the building out of 389 units.

RENTAL COMMENTARY

The number of rentals declined in May from April – down from 1500 to over 1200 in the downtown condo market. It appears that rent controls are having the side effects that we predicted. Tenants are not moving in the same numbers. The other effect is that units that do hit the open market are renting at higher prices! The average sale/rent price is now at 101% of list price across the market!

Studios are now averaging $1800 per month – up $100 from last month. see the problem?) The one-bedroom market – depending on a den and/or parking runs from $2100 to $2450 – that’s up $50/month. The two-bedroom market starts at $2700 – unchanged from last month but the upper end (a den plus parking) is now at $3750. There were 18 three-bedroom units leased at an average price of $4400.

We have a real crisis in the downtown market. Both levels of Government are losing tax revenues from lower sales. They need to create opportunities for entry level housing. If you are happy with a ‘Manhattan’ style of housing – more renters, fewer owners, then we are well on our way. A rent of $1,800 per month would translate into a payment on a $400,000 mortgage at a variable rate of 2.45%. But, you have to qualify as if you were paying at 5.34%- which would only get you a $300,000 mortgage. See the problem?

Toronto MLS Sales

Monthly with Three Previous Years for Comparison

This chart plots monthly MLS® Sales for the current year and the previous three years. The recurring seasonal trend can be examined along with comparisions to previous years for each month.source:The Toronto Real Estate Board

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